Small Business

Introduction

The study of efficient and effective operation of a business is called management; this discussion tends to examine the role of small and larger business in the context of management. Various areas of business will be covered starting up with the key definition terms of small and larger businesses; management concept will be defined in order to highlight its importance on this study. Furthermore with the help of the management concept the discussion will oversee how small and larger business are managed through various styles although it is difficult to points out precisely what the difference are, the understanding of the difference between the role of the management in a small firm and in larger organisation will be emphasized which will later lead our discussion to various types of management that are found in small businesses or firms.

Executive Summary

Small business a sector employs more than half of the employee in the private sectors across UK, this study aims at identifying how small businesses are managed comparing to the large businesses. Management of small business in the context of key resources such as premises and people has been discussed, furthermore the management of small business at its growth stage using Churchill and Lewis model has also been covered.

Managing a business

Small businesses require a different management style to large ones, this statement is agreeable, however it is necessary to examine the concept of management before going any further, Management as defined by Kreitner (1999, p, 5) is the process of working with and through others to achieve organisational objectives in a changing environment. There are four basic management functions that make up a management process in a business, these according to Certo (2003, p.6) include:

Planning, involves choosing the task that must be performed to attain organisational goals, outlining how the tasks must be performed and indicating when they should be performed. Planning activity focuses on attaining goals, managers on the other hand undertaken the task, gather its plan and oversee it executed.

Organizing, the manager after planning has the task of assigning it to various employees or staff within the organization. This is the second function of the management process, task are organized so that the output of individuals contributes to the success of departments, which in turn, contributes to the success of divisions, which ultimately contributes to the success of the whole business.

Influencing, this is term used in the management to refer to motivating, leading, directing or actuating, however the primarily concern for this influencing function are the people within the same business or organisation. The purpose of influencing in any firm doing business is to increase productivity.

Controlling, in this function the managers of the business gather information that measures recent performance within the organisation, compare them with the previous one and make decision to whether the organisation should be modified to meet re-established standards.

So with the initial understanding of the concept of management as a whole, we go further with our discussion and examine the concept of small business.

Small Business

According to Scarborough & Zimmer (2007), the term small business refers to a business that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size in terms of employees or annual receipts. However the term small business has no single definition, Storey (2002, p.8) gives an example the petrochemical industry in which he states that there is likely to have much higher sales of capitalisation, sales and possibly employment than a small business in the car repair trades. However the understanding the small business should be considered using various factors such as number of employees, sales turnover, profitability, net worth, etc.

Bolton Committee (1971) in Storey (2002) defined small firm or business by dividing it into two categories, economic and statistical definitions respectively. The economic category regard business as being small if they had relatively small share of their market place, they were managed by owners or part-owners in a personalized way and not through the medium of a formalised management structure and also that they were independent, in the sense of not forming part of a large enterprise.

Statistical definition of small business by Bolton committee aimed at addressing three issues first was to quantify the current size of the small firm sector and its contribution to economic aggregates such as gross domestic product, employment, exports, innovation, etc. Also the other consideration is the extent to which the small firm sector has changed its economic contribution over time and the last definition involves principles has to enable a comparison to be made between the contributions of small firms in one country with that of other nations (Storey, 2002), according to Siropolis(p.6,1998) he points out the fact that small business is a vital force in American economy, further evidence of this vitality being the fact that small business employs roughly half of the nation’s workforce and generates 54% of the sales revenues and 40% of the gross national product.

Management styles

The various management styles, however the most three most common ones are democratic, autocratic and consultative. Small business do require different management style than larger ones because doing the correct style of management can result to greater motivation and productivity in a business, however the selection of these style will be influenced on the personalities and characteristics of the people who manage the business (Torrington & Hall,1991).

Democratic management style refers to the method whereby a manager or business owner chooses to delegate authority to his/her employees, giving them responsibility to complete the job which was given to them. According to Boyd (2005) these employees will tend to complete the task using their own techniques or methods but within allocated time. The main idea on this style is the concept that the business owner or manager involves his/her employees in the process of decision making thus giving them a sense of belonging and motivating individuals. As we mentioned earlier that the characteristics and personalities of a manager will influence the style adopted, thus motivating the employees and the work or production improves.

Autocratic management style, differs from the previous mentioned style mainly because the manager or business owner does not have the decision in making process with his/her employees and in return makes decisions on their own and is used to dictate orders. This management style when practiced helps the accomplishment of tasks on time, however the employees working in a certain business firm may grow tired and become demotivated as it shows that staff are not valued and their opinion.

Consultative management style, in this style the business owner may tend to combine both autocratic and democratic style he/she may wish for the opinion and suggestions.

Laissez Faire management style, is the one in which employees are given freedom to undertake task the way they see fit, however the manager/business owner may be involved at certain minimum point, the role of the manager in this style is to act as an expert, coach or advisor is he/she is there to oversee how the task is undertaken and provide assistance whenever needed, however this may result for the employees to loose the sense of direction and not completing the work within allocated time.

Small businesses can be initiated at a very low cost and on a part time basis. It must be understood that small business is also well suited to internet marketing because it is very manageable to serve a niche, something that would have not been possible prior to explosion in internet activity(www.answer.com ,2007) however the point to note is that like many large ones, small business has to adapt to change, usually lacking bureaucratic inertia can often respond to business operators tend to be intimate with their customers, thus resulting in greater accountability and responsiveness.

Growing a small business

While managing small business, there are several problems that could be found along the way, managing of a small business requires marketing skills as well among others. Longenecker, Moore & Petty (2000) agree that marketing skills are essentials to a small business owner trying to manage his/her business in a unique style, however they point out the fact that common small business must include networking, customers referrals, word of mouth, television, radio, yellow pages directory, internet, print etc.

According to Storey (2002) small business find the internet market affordable, for small business or entrepreneurs online marketing such as using eBay could be more affordable, using niche websites to advertise can also be effective, this is a way of managing business by focussing or addressing a need for a product or service that is not being addressed by many providers, this is however narrowing a defined group of potential customers.

There are five stages in the life of small business. During these different stages, firms use different strategies, have different goals, go through different marketing phases and even draw on different resources. The impact that these stages have on the business can be used as advantage and help to organize the businesses’ management style in the future.

Survival stages in the life of a small business include over trading, uncontrolled growth, increasing distribution complexity, information needs, revenues, management style entrepreneurial, simplest structure and break even situation.

Growth stage activities include how to manage growth, adequate resourcing, pressure from large competitors, new markets, management less hands-on, moving toward coordination and delegation, organisation structures develop and retained earnings and cash generating.

Maturity is the last stage that deals with controlling of expenses, productivity, handling of niche markets, price competition, increased product innovation etc.

Managing small business

The way small business is managed is total different from a larger one, by using total management in their daily activities of running its business. According to Stokes & Wilson (2006, p. 346) managing of key resources such as premises is one of main activities in the life of small firm; it requires decision on locations, physical and environmental features and types of lease or purchase.

When managing a business through key resources there some common problems and influences, these are such as potential autocratic leadership by owner or manager (as discussed earlier), limited leverage in obtaining resources required including finance and also a limited research and control of the business environment. These influences relate direct to lack of specialist management in the firm or business.

Management is about using resources effectively in order to meet the objectives of the enterprise or business. It must be kept in mind that a person managing a small firm or business should have ability to pursue opportunities without regards to the resources that are controlled and also to make decisions on how to obtain and use those resources. Managing a small business unlike the larger one involve that a manager makes decision regarding resources such as the type that are needed, when they come from and how they will be used.

As we mentioned earlier premise management is one of key factors for a small business that fall under the resources category, when initiating or growing business, a consideration should be taken into account that costs will have to be incurred such as rent and rates.

When managing small business or firm the legal and financial implications are usually the most important factors in deciding on the type of premises, for example taking on a lease is often a major commitment for a small business owner who in return has to give out a personal guarantee, this means that he or she has to pay rents and rates etc.

As pointed out in Longenecker, Moore & Petty(2000) the premises available to small business include option such as home, whereby many businesses operate successful from home as this is low cost and convenient, while its disadvantages include balancing work and home life, tax complications and meeting clients. Further options are as mentioned below

Flexible lease, is also available in the business premises, most of which are offered with flexibility often with a three months break classed. Such arrangement allows an owner to have freedom to change premises as needs arise, although the rental costs are usually higher than comparable property on longer terms leases.

Traditional lease, this is whereby a building society or financial assistance is given for a period of 5 years or more and therefore giving a small business or firm security of tenure and lower costs. For an established viable business ready to invest in infrastructure and fitting out of premises, this is a popular option.

Another key activity in the management of small business is the purchasing of materials and equipments especially in a business whereby the nature of business for example involves manufacturing and retailing. The benefit of a good management when handling purchasing materials and equipments can be viewed in many ways, this include enabling the choice for right materials for the job.

Insurance in a small business is extreme important and aims at minimizing the impacts of mishaps. It is understood that small firms are particularly vulnerable to disasters. Managing this type of a business is not the same as large business and requires appropriate insurance policies to mitigate the effect of misfortune, and in the case of UK, small businesses or firms is aware that insurance is obligatory for employees’ liability such as employees’ claims on injuries, specified contracts etc.

Management style through people

According to Storey(2002) and Hall (1995) small business in the UK employing up to 50 business account for more than half of all private sector businesses, and pointed out the fact that small business management is different from managing a larger one because of its social structures, relationship and as we mentioned earlier the amount of resources available. People or employees are the main resource and they play an important role in determine how the business is run in small business. It must be noted that the small business can employ even a single person who may be the owner- manager, this person may take the business through various phases and watches it grow, however one drawback for many small businesses is that the owner-managers are lacking managerial expertise as they tend to establish themselves first and as the business grows they tend to employ people with skills and expertise to undertake their duties.

Through various stages the style of management in a small organisation the owner-manager exercises control over the business using his/her personality but in some occasion the employees may have the control in a business for example when the business requires skilled labour who are in short of supply the owner-manager may not have large say in their work while in other occasions if their had been a need of unskilled labour the owner-manager would have control depending on his/her personality.

Unlike in large organisation, in a small business there are known to exist four types of management styles that can be used to control the workforce, these are paternalism, benevolent autocracy, fraternalism and sweating (Stokes & Wilson, 2006)

Fraternalism is the type of management practiced in the small organisation whereby the owner or manager depends on the skills provided by the employees to get the work done. In that sense these employees do not depend on the small business as their skills are in great demand somewhere else, however the nature of the work undertaken is based on the mutual agreement between the person who manages the small firm and those skilled employees or labours. Fraternalism can be said to be found in many business for example in the Car Repairing Business, the owner or manager may have the capital to start that business but lack the skills for undertaking the job, in that sense a person who works as a technician may as well have control over the work, and the decision made is based on the agreement of the two. It also must be noted that in this type of management style there is no hierarchy for decision making.

Paternalism, is the type of management style whereby the owner or manager does not have to depend on the employees, paternalism is opposite of the fraternalism. In this style the difference between the owner and employees can be obviously be viewed, however the employer acknowledges that the business needs the commitment from its employees and therefore tend to establish a bond between management and employees as a way to motivate and encourage in their work. An example of paternalism can be found in small organisations that work as temporary job agency, whereby the method of employment is made on temporary basis, however the agency acknowledge the importance of temporary employees although they do not depend on them.

Benevolent autocracy can be found in many small firms in the modern world of business, the employer or manager may sometimes tend to show their power by on employees. In this type of management the employees are said not be economical dependent and therefore they tending to forge the relationship between them and the employers. This is however the relationship that does not exceed beyond the work hours. Small IT companies tend to treat their workers in the form benevolent autocracy due the development of technology and high supply of labour compares to the jobs available.

Sweating, is another type of management whereby the workers are exploited by the owners or manager in order to keep the operating cost low and have flexible service. As mentioned earlier the job agency that employ students, migrants and other people as temporary employees tend to do so in order to keep the their operating cost low and have flexible service by having workers work only when they are needed and get paid for that particular time. Lack of skills makes most of the employees in this category vulnerable to exploitation.

Some organisation may have two or more of the above mentioned types in their daily activities. There is a highly variation in the concept of managing people in small business, however the owner or a manager in charge is the one who with regards to his/her personal styles will be conditioned by the external forces prevalent in the industry (Hall,1995)

Churchill and Lewis Model of five growths

Small business pass through five stages as mentioned earlier, these stages have their own management style.

Existence is the stage whereby the small firm is on its own and is simple with the main idea or goal is to not cease existing, the market research on customers is viewed as necessary phase to undergo, then to develop if it is possible. The management is strictly under owners’ supervision; however the company is vulnerable to fail in this stage if there is lack of management skills.

Survival is the stage whereby there is satisfaction in management style to due the first market research. The small firm has managed to find enough customers to remain active. Furthermore at this stage more attention is made towards cash flow, profitability and assets. The owners of the business still tend to supervise the current management, just to make sure that their interests are met, the aim at this stage is to survive and grow.

Success, the business reaching this stage tends to enjoy profits and stability times while the customer demands are covered and the penetration on the market is satisfactory. In this stage the growth of the company is promising, also owners of the business begin to trust the management and their styles and they choose to delegate responsibility. Financially the business is more stable then if was before and able to grow, however there is a need to extend the management style and also take a look at organisation structure.

Take off, is the stage whereby the management of rapid growth and how to finance its resources, if all goes well the future of the business looks even brighter, however the business at this point may be subjected to failure if its growth prove to be the fast and the business in return may run out of the fund on attempt to achieve that growth the management of the business at this stage is total under manager’s control.

Maturity is the last stage in which the business is on the maturity stage, and so the management styles and skills are the key in managing the business and control the profits.

Conclusion

It is agreeable that managing a small business is different to managing in a large company. We have discussed what are small businesses and the concept of the management as a whole.

Furthermore we have identified that premises are a key resource that require decisions on location, physical and environmental features and types of lease and purchase, also we have seen how people can be managed within a small firm whereby four types of management where identified these were fraternalism, paternalism, benevolent autocracy and sweating, although small firms are under management of single owner we have seen that it is possible for the business to be managed by the team, this was verified by identifying various management styles that could be found on the Churchill and Lewis model, these were all linked to management styles, organisational structures, systems and overall strategy.

Finally, the conclusion that can be seen from our discussion is that the managing of a small business is not the same as managing a larger one, and it is has also come to our attention that it is not possible to identify every difference but managing a small business depends on how much resource to be managed are available.

Reference:

Hall, G (1995), “Surviving and Prospering in the Small Firm Sector”, Routledge, London